OT - 401K's and 403B's

Discussion in 'Off Topic Archive' started by DaddyChoc, Feb 25, 2014.

  1. DaddyChoc

    DaddyChoc His Chockishness

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    for those of you that are retired... was it worth have either?

    how long did you have? how handy is it these days (in retirement)

    Do you encourage today's youth to start one and dont touch even after leaving an employer.

    What was the interest rate when you first started one... and what was it at the end?
     
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  2. cockhrnleghrn

    cockhrnleghrn Fan of the Garnet & Black

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    If your employer matches or partially matches your contribution, put in at least the maximum they will match. If they match dollar for dollar, you have a 100% return right there.
     
  3. VAUConnFan

    VAUConnFan

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    The 401(k) offered by my employer was matched dollar for dollar on the first three percent, then 50 cents on the dollar up to five percent with a yearly limit on contributions which was always around 10 to 13 thousand while I was working. We had options as to where our money was invested whether it was a government securities, stock mutual funds, bond mutual, international markets, or small capitalization, and we were allowed to play around with percentages. The only fund guaranteed not to lose money was government securities, but their returns were relatively paltry, usually under 5 percent yearly. The farther one is from retirement, the more risks one takes. Most years, we did quite well. But, in the two months before I retired, even with most of my money invested in government securities, I lost close to five thousand dollars. There were people with whom I worked that lost over ten times that much in less than a year. All in all, a very good deal. The sooner one starts the better. There are a number of very informative articles on the subject, and one's HR department is, likely, well versed on the subject since very few employers presently offer company sponsored pensions.
    401(k)s and 403(b)s are pretty much the same with very subtle differences; A subject for someone more knowledgeable than myself.
     
    Last edited: Feb 25, 2014
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  4. DaddyChoc

    DaddyChoc His Chockishness

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    I think 403's are for non-profits, churches etc.

    thanks for the information.

    are 401/403's what we call pensions or are they an addition to a pension?
     
  5. VAUConnFan

    VAUConnFan

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    If your company does not offer a pension, then the 401/403 is your pension; The case for more and more companies these days with the prohibitively high costs of pension plans. For those fortunate enough to have a company/government sponsored/defined pension plan, then the 401/402 supplements the pension. The yearly limits on contributions make it difficult for the 401/403 to supplant the company pension as a primary source of retirement income, but it is nothing to sneeze at.
     
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  6. HuskyNan

    HuskyNan Administrator

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    I agree with VA that a 401k is an excellent idea, especially if you start early. My reasons:

    1. The money comes directly out of your paycheck so there's no temptation to spend the money before it can be put away
    2. The deposits to your 401k are pre-tax, so if someone puts, say, $100 in their account, it lowers their taxable income in their paycheck by $100
    3. Any company match is free money. Who would turn down free money?
    4. Starting young gets the person into the habit of saving. And any future salary increases would increase the investment in the 401k account.
    5. Almost all 401k accounts are professionally managed with options for each employee to choose their investment options (aggressive, conservative or a mix). You have professionals available to help you learn the ins and outs of managing money & your investments. I get frequent emails from our 401k company with suggestions on where/how to save, things to consider as we get older (long-term care, disability insurance,e tc) that are appropriate for my age.

    These are great deals, really.
     
  7. UcMiami

    UcMiami How it is

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    Absolutely use 401K if you can - as others say, the employer contributions are free money, it reduces your current taxation (postponing it till retirement) and income earned on the money is also postponed tax wise. And the penalties for touching the money early are a good incentive not to do so. If you start early it will be a sizable nest egg and while I believe SS will remain viable in some form, it sure will not make for a luxurious lifestyle by itself.
    My recommendation to any young people is to max out on any tax free retirement plan they can and to try and create a disciplined taxable savings plan as well - even if it is just $5 per paycheck. And to treat any year end bonus as part of that savings plan as well. The options available and freedom that having a large bank balance provide are huge - and the earlier the start the quicker that independence of action becomes real. Deferring one night out a month can equal $1000 a year in savings and that can compound into a nice down payment of a house quite quickly or just into two weeks in Europe instead of 12 forgettable dinners.
     
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  8. Fightin Choke

    Fightin Choke Golden Dome Fan

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    I teach at a public college and we cannot use 401K's, but are forced to use 403B's. One difference is that while you can borrow from your 401K and pay yourself interest, you cannot borrow from your 403B.
     
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  9. Storrsbred

    Storrsbred

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    Just another school of thought, there is the possibility that your tax rate could be higher when you retire than today, even though accepted wisdom says otherwise. My opinion is this is a distinct possibility the way things are going in this country and the world. IF this happens, you would be possibly better off paying tax now and investing in a vehicle that grows with the economy or better and allows you to withdraw your money income tax free later when you retire. As tax laws stand today, such vehicles are available and if the law changes you would most likely be grandfathers in. The other side of that coin is that any money contributed by your employer pays the tax later, assuming the tax laws don't change dramaticlly.
     
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  10. Adesmar123

    Adesmar123 Can you say UConn? I knew you could!

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    If a 457 is available....use that. Its less restrictive.

    All these questions and responses depend on your current and future situations. There are very few comments that stand on their own. The one that does is to maximum your contributions if your employer matches.

    It also matters on the fees charged and the amount and range of investment offerings. So you might maximize your employer contributions in the 401k, and start an IRA with the remainder.

    What type of employer?
     
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  11. UcMiami

    UcMiami How it is

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    While that is true, the amount that you lose in current tax reduces the starting amount that gets compounded. This points to why buying no-load funds vs. load funs is also a smart choice - paying 5% of your investment up front in 'load' takes a lot of years of better performance to compensate for. In the same way, but more dramatically paying 25% in tax today so instead of $10,000 you are investing $7500 would require a very large tax increase to compensate for at the other end after 30 years of compounding. And if you are doing this on a yearly basis, you are presumably getting an increased tax break each year as the tax rates rise so the value will be increasing with your hypothetical increase in taxation.
     
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  12. Phil

    Phil Stats Geek

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    I was going to give you some advice (I was in asset management for a few years) but I'd be hard-pressed to beat Nan's advice.

    Short answer - great deal, take advantage if you can.

    One minor comment on Nan's point 2 - she's talking about a traditional 401K, there are also Roth options, the difference is easy to explain, traditional, your contributions go in pre-tax, and you pay tax later (but get tax deferred buildup, so a good deal). Roth go in after tax, but withdrawals are tax free. Which is better can be complicated, but both are better than not doing anything.

    There are roughly two types of pensions, what are traditionally called pensions are now called defined benefit plans, They are going away, although some people still have them. A 401k is called a defined contribution plan.

    Many plans have a confusing array of investment options, but many of them have some which might be called life cycle funds or a similar name. they are a great option. Please ping me if you want more information
     
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  13. DaddyChoc

    DaddyChoc His Chockishness

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    Do you need additional savings besides our normal "work pension"... regular acct with not so easy access by the time of retirement? Is that pension enough, how much difference in amount monthly take home vs monthly pension. 50% less?
     
  14. pinotbear

    pinotbear Silly Ol' Bear

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    DC, I think the old "rule of thumb" was, you needed 60% of your "work income" in your retirement - for example, using simple numbers, if your weekly income when you retired was $500, you'd need $300 per week in retirement. Of late, I've seen 80% recommended, rather than 60%, so $400 per week instead of the old $300 per week.

    Whether or not you need additional savings depends on a whole lot of factors. First, how much will you be getting from Social Security? (and that is dependent upon when you decide to start drawing your SS check). Second, how much is your work pension? (again, that can depend upon when you start drawing it.) In addition to your work pension, are there any other work-related benefits that carry over to your retirement, like inclusion in a group health plan?

    It's never a bad idea to have additional savings - in fact, as someone mentioned earlier in the thread, if your employer "matches" part of your contribution to a 401K, it's almost criminally stupid not to take advantage of that free money. But, back when I was a college administrative dept. head, I had to sit some employees down and say - "Go down to HR and sign up! That's all you have to do! It's free money!" Yet, some folks in the dept. were intimidated by the paperwork, or couldn't see past the few percent that they'd have to contribute. I used to recommend to those folks, "Have the start-date of the contributions be the same date as the annual pay raise - that way, you'll miss it less."

    Without sitting down with you and going over all the numbers, the best simple advice is, if you can set aside something, do it - no matter how modest. If your employer has a matching 401K-ish plan, absolutely take advantage of that, even if it hurts a bit to do so.
     
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  15. vtcwbuff

    vtcwbuff Civil War Buff

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    I don't see how any one can retire on SS alone. Start planning early and sacrifice a bit. Conventional wisdom says 70-80% of your pre retirement income but it all depends on your circumstances. Mortgage paid off, no car payments, kids on their own etc.

    "Fixed income" is a fact. One thing to consider is true cost of living - not the government BS inflation figures but the real numbers that include increases in health care, groceries, transportation etc.. I've been retired for 15 years and the biggest unexpected drain on our retirement incomes is GD taxes. Taxes keep increasing faster than COLA.
     
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  16. FairView

    FairView Mad Man

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    My retirement plan is to enroll in UConn and become a manager for the women's basketball team.
    I won't be retiring until I am 70 -- do you think they'd take me at that age?
     
  17. pinotbear

    pinotbear Silly Ol' Bear

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    I'm thinkin', that if they need you to fill in for a practice drill, you're gonna be one sore puppy the next day!:rolleyes:
     
  18. yanks61

    yanks61

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    Trust me, you can't save too much, any savings plan is good. I think a Roth would be a good option if it is offered. In future years, if tax rates or your income go up (a real possibility!!) you save again because you paid the taxes at a lower rate.
     
    Last edited: Jul 8, 2015
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  19. HoopsFan21

    HoopsFan21

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    You could always do a Roth 401k and take the tax hit now while the investment grows tax free. With a standard 401k you defer the tax payment until you withdraw (retire), but you are then paying the tax on the amount withdrawn, not the initial investment. You need to assume future tax and investment growth rates and decide from there and of course offset any income by the future value of the extra taxes you would be paying today and in each successive pay period because you wanted the investment to grow tax free. The other thing that kind of scares me about any tax free plan is not just the future rates, but who is to say in 25 years or so they don't change the tax code and suddenly what was going to be a tax free withdrawal no longer is if you're above some typically arbitrary income level?
     
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  20. tomcat

    tomcat

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    I was fortunate to work for a couple of companies in financial services that offered 401(K)s with matching contributions. No matter how poor I was at the time, I managed to find enough to contribute the maximum that my employer would match. I was amazed at how quickly the money built up. I am far from rich now, but I do have at least some money saved to help when I retire in a year or so. My advice is always to open a 401(k), even if there is no employer match.
     
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  21. Fiftyish

    Fiftyish

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    I had a 401(k) with the company matching my contributions. I contributed for close to 30 years. Performance was dependent upon the investment choices I made. Although it took a hit the year I retired (2007) it has come back strongly. This year I took my first RMD (required minimum distribution).
    My wife worked for the state and besides a state funded pension she was allowed to contribute to a 403(b). She was a teacher for the state.
    We are fortunate. Both plans have done well.
     
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  22. hardcorehusky

    hardcorehusky Randy's back and you're gonna be sorry!!

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    If your company offers a Roth 401K - take it. The tax rates are at all time lows so any deferred tax payments are at a higher rate down the road. Also, only put in to max out the company max.

    Another great savings idea that a young person should do in order to continue tax preferred treatment while utilizing a forced savings account is to have a small whole life insurance policy. It is a long term play and after 12-14 years, the cash value will equal the amount you paid in. From there, it can grow very well and by the time you retire, you will have a paid in full policy with lots of cash value that you can utilize tax free if handled properly. Make sure you use a good company for that product= Mass Mutual, Northwestern Mutual, Guardian or New York Life are the better ones out there for that product.
     
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  23. stamfordhusky

    stamfordhusky

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    Yes, there is a real risk that politicians will renege on the Roth promise - especially with the country in such horrendous financial shape. The Obama administration has already talked about changing the 401K rules for existing accounts and taxing part of the money that was promised to be tax-free. They have also talked about retroactively changing the rules on 529 plans. Changing the rules in the middle of the game would surely be unfair, but would not be particularly surprising.
     
  24. DaddyChoc

    DaddyChoc His Chockishness

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    as a young fella about 25 yrs ago my supervisor encouraged me to "sign these papers"... I said whats that, he said just sign, "they'll be taking a little money out of your check and you'll get it in the future". Best advice I was ever given and most important piece of paper I ever signed. Rates were 10-12% at the time... but went all the way down to 3% in the past 10yrs but is currently at 5%. I was laid off from that job about 8yrs ago and left the money in there (dont know much about "rolling over"). Its still growing at 5% interest (about 400.00 a month) but of course I cant contribute anything to it.

    Should I roll over?

    Im about 15yrs away from "retirement age"
     
  25. tomcat

    tomcat

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    When you say "rates," do you mean what you are earning? Assuming this is a 401(k), the amount you earn is a function of the investment decisions you make. There are a bunch of questions you need to ask, one of the first of which is this: How much are they taking from me in fees? If it's a low-fee arrangement -- invested with a company like Vanguard -- I would leave it there and focus on making sure the funds in which it is invested are ones that match your goals.

    To me, there are only two arguments for rolling over a 401(k) into an IRA that make any sense:
    1. Your 401(k) does not offer good investment options; or
    2. Your 401(k) is being provided by a company that charges too much in fees.

    And if you decide to roll it over, make sure you are not paying any more in fees for the IRA than you did in the 401(k). Because, why would you ever do that?
     
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